Insuring Agreements vs. Exclusions

My November 2025 column talked about ambiguity in insurance policies. When litigation is initiated by an insured seeking coverage following a claim denial, often a primary assertion is that the policy language in question is ambiguous. If the court agrees that there is more than one reasonable interpretation of the meaning of the policy provision, the insured usually wins.

The question posed in last month’s column was whether almost all policies today, after decades of litigation, include significant ambiguities in the contract language. Can many policy provisions have multiple interpretations that are reasonable? If so, how do we address these conflicts?

This issue came up again recently when I read a LinkedIn discussion initiated by policyholder attorney Chip Merlin in reference to a recent Claims Journal article by an attorney that usually represents insurers in litigation. Literally while I was reading the LinkedIn thread, I got an email from an agent that raised the same issue of ambiguity.

According to the agent, a customer entered into a sales agreement under a written contract with an automobile dealer to sell a car owned by the customer. A couple of weeks later, the dealer advised that the car had sold and the money would be forwarded to the customer.

Several weeks and follow-up phone calls later, the money had still not shown up, so the customer reported the incident to his automobile insurer, which quickly denied the claim. For decades, my experience in getting arguable claim denials reversed has been pretty good–except for the insurer in question that largely uses non-ISO forms and, as I’ve found, rarely backs off of claim denials.

The policy in question includes “Theft Coverage” in the physical damage insuring agreement as follows:

“We will pay for loss of or damage to your automobile and its equipment caused by theft, larceny, robbery or pilferage. We cover your loss when you are tricked into giving your automobile to another person.”

The insured’s interpretation of this insuring agreement is that it covers his situation, that the dealer committed theft by accepting the vehicle for sale then kept the money. He believes it was either outright theft or trickery by the dealer in enticing the insured to trust him. Is such an interpretation of this insuring agreement reasonable?

I discuss the issue of what constitutes “theft” in my book “When Words Collide…Resolving Insurance Coverage and Claims Disputes,” pointing out dictionary definitions such as:

“A criminal act in which property belonging to another is taken without that person’s consent.”

“The generic term for all crimes in which a person intentionally and fraudulently takes personal property of another without permission or consent and with the intent to convert it to the taker’s use (including potential sale).”

Theft synonyms include: felonious taking, robbery, stealing, larceny, swindling, TRICKERY, thievery, shoplifting, burglary, misappropriation, embezzlement, fraudulent taking, looting, pilferage, conversion, plunder, shoplifting, holdup, heist, stickup, five-finger discount, rip-off, furtum, and peculation. (Who knew that Dillinger was a ‘peculator’?)

Webster’s sums it up with “An unlawful taking of property.” In other words, the word “theft,” in the vernacular, can include virtually any act of illegally taking someone’s property. That sure seems to fit here.

However, later in this auto policy, there is a specific exclusion that says that the “Theft Coverage” does not apply to “conversion, embezzlement or secretion by any person lawfully having your automobile under a sale, lease or similar agreement.”

In this exclusion, the key word is “conversion,” which is a common law term that means that someone has been entrusted with someone else’s property then violated that trust by not returning the property or disposing of it for their own gain. That appears to be the case in this claim, especially given that the exclusion for conversion only appears to apply to situations where the offending party lawfully has the auto “under a sale, lease or similar agreement,” and that is the circumstance here.

‘Often differences in interpretation of policy provisions arise because the drafter(s) failed to clearly convey the meaning behind the words chosen to express the insurer’s intent.’

The insured, on the other hand, believes that he was “tricked” by the dealer into entrusting the car to him and the insuring agreement specifically says, “We cover your loss when you are tricked into giving your automobile to another person.” He believes this gives him a reasonable expectation of coverage, especially given that, in his opinion, only a lawyer and not a layman would know what is meant by “conversion, embezzlement or secretion.”

My guess is that, if this is litigated, most courts would uphold the exclusion, especially given its limitation to sales and leasing types of agreement as we have here, but you never know for sure…and that’s not really the point of this column.

Getting back to the Claims Journal article mentioned earlier, the title of that article is “Sins of Policy Interpretation: A Call to Repentance.” A primary point of the article is that, before we get to litigation or even interpretative arguments about the meaning of the words in an insurance policy, we should begin with the drafter(s) of the policy that committed the original sin of ambiguity.

Often differences in interpretation of policy provisions arise because the drafter(s) failed to clearly convey the meaning behind the words chosen to express the insurer’s intent. For example, in this particular case, was there really any need to include the statement that “We cover your loss when you are tricked into giving your automobile to another person” in the insuring agreement, especially when this statement isn’t qualified until two pages later in the policy rather than immediately in the insuring agreement?

Some years ago, when I did commercial property seminars, I used to ask students whether the ISO CP 00 10 Building and Personal Property Coverage Form covered signs and, if so, for what perils and for how much in value. At the time, the initial insuring agreement said it essentially covered all structures on the described premises. However, later in the coverage form under Property Not Covered, it said signs weren’t covered.

Then even later, it said that signs WERE covered, but only for $1,500 and only for five perils. Still later in the coverage form, it said IF the sign was attached to a building, it was covered for the same perils that covered the building BUT only for $1,500. Note that only signs ON the described premises were covered, not the highway sign a mile down the road.

Wouldn’t it have been better to address sign coverage entirely in one provision in the policy, rather than repeatedly revisit the coverage, or lack thereof, throughout the policy?

Surely, we can improve how we convey our coverage intent so as to limit the need for a “Where’s Waldo®” search for coverage? If not, we’re doomed to continue to litigate ambiguity allegations that arise, not from differences in interpretation of the meaning of words, but simply because we haven’t more clearly expressed the coverage intent. We can do better.

Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including the Amazon 4.8 star rated “When Words Collide…Resolving Insurance Coverage and Claims Disputes.” He can be reached at InsuranceCommentary@outlook.com.